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HMRC internal manual

PAYE Manual

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HM Revenue & Customs
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Reconcile individual: end of year reconciliation: tax calculation - reasons for underpayment screen

Note: You will need to be familiar with the contents of PAYE93036 (Tax Calculation Issues) before you proceed to authorise the issue of a tax calculation and, where you are called upon to review a tax calculation that has already been issued.

When a tax calculation is triggered and it results in an underpayment above tolerances the system automatically selects the reason(s) as to why a customer is underpaid and the details concerned are displayed in one or both of the following underpayment reason screens

  • Reason for Underpayment screen 1. The screen displays underpayment reasons under the heading of ‘The Following Included In The PAYE Code Was Lower Than The Amount Taxable’
  • Reason for Underpayment screen 2. The screen displays underpayment reasons under the headings of ‘Amount in Code Higher Than Amount Due’ and ‘Other’

You may need to access the screens to review the reasons what have already been accepted as being correct in respect of a tax calculation that has already been issued or is pending issue. The reason options are ‘locked in’ and can’t be amended manually.

Reviewing underpayment reasons: approving tax calculations for issue

As part of the manual process to approve the issue of a tax calculation, once you are content with the calculation itself, you will automatically be taken to underpayment reason screens when you select the [Submit] button on the Tax Calculation screen (PAYE93037). The screens display (by having an indicator present in the checkbox next to the appropriate reason) the reason(s) the system has chosen as to why the customer is underpaid. There will be a maximum of 19 over and underpayment messages displayed. If there are 20 or more reasons there will be a message of ‘We have displayed 20 explanations below’

  • A reason found as to why the customer is underpaid is that their employer failed to deduct the correct amount of tax, you should consider PAYE95011 before you proceed to authorise the issue of the tax calculation concerned
  • The standard underpayment reasons do not apply you should select the ‘Other’ option on screen 2 and enter a free text note (of up to 35 characters including spaces) in the Reason field as to why the underpayment occurred

Any non-standard reasons you enter into the ‘Other’ Reason field as to why a customer is underpaid, must be valid as they will be printed on the Tax Calculation (P800) issued to them.

Once you select the [Submit] button on Reason for Underpayment screen 2. the status of the calculation will be set to ’Pending’ (issue) and you will receive a message to confirm that the Tax Calculation (P800) has been issued. However, prior to being issued the underpayment will undergo an overnight check to determine how it will be collected (through coding or by voluntary payment) and the tax calculation will not actually be issued until the day following the check concerned.

Reviewing underpayment reasons: tax calculations already issued or pending issue

To view the underpayment reasons printed on a Tax Calculation (P800) that has already been issued or, where the calculation concerned has a status of ’Pending’ (issue), you access the underpayment reason screen by selecting the [P800 Reasons] button on the Tax Calculation screen of the appropriate calculation.

Where you are reviewing a tax calculation that has already been issued and a reason found as to why the customer is underpaid is that their employer failed to deduct the correct amount of tax, you should consider PAYE95011 before you proceed further.

Note: Where a customer has both overpayment and underpayment reasons in a year both sets of reasons will be displayed on the P800 but the overriding reason will display first i.e. if the overall result is underpaid those reasons will be shown first.

  • Is overpaid in the year in isolation but the year end result is that they are underpaid (due to a large underpayment being brought forward into the year), the system will identify an underpayment reason for the year of ’This calculation includes tax you owe HMRC for an earlier year. We have shown this in the adjustments of your calculation above’
  • Is underpaid in the year in isolation but the year end result is that they are overpaid (due to a large overpayment being brought forward into the year), the system will identify an overpayment reason for the year of ’This calculation includes tax HMRC owes you for an earlier year. We have shown this in the adjustments of your calculation above’

The reason(s) will be printed on the Tax Calculation (P800) issued to the customer and you may receive contact from them in which they ask for a full explanation of the calculation. Where this is so, you will need to fully review all aspects of the case / year (for example Coding and Employment History and the benefits coded in the year against those in the tax calculation), to explain the calculation.